USD/JPY crosses 121.00 to fresh high since 2016 as T-bond yields stay firmer ahead of Fed’s Powell

• USD/JPY remains on the front foot for the fourth consecutive day, renews six-year top.
• US 10-year, 2-year Treasury yields poke the highest levels since May 2019 as Fedspeak portrays rate-hike aggression.
• Japan PM Kishida is likely to unveil fresh stimulus, Ukraine-Russia crisis continues.
• Powell’s comments, second-tier US data will be important for intraday directions, NATO, key economics will offer a busy Thursday.

USD/JPY refreshes the highest levels last seen during early 2016 with 121.28 figures during Wednesday’s Asian session. That said, the quote seesaws around 121.15 by the press time.

The strong performance of the US Treasury yields and Wall Street seems to have underpinned the USD/JPY pair’s latest rally. Also positive for the yen pair are the chatters over further stimulus from the Japanese government.

That said, yields of the US government bonds for 10-year and 2-year tenures rose to the highest since May 2019 as the Fedspeak keeps inflating expectations of faster rate hikes from the US central bank. Among them, St Louis Fed President, James Bullard and Cleveland Fed President Loretta Mester clearly showed signals of 50 basis points (bps) of a rate lift.

It should be noted that Yomiuri recently mentioned that the Japanese Prime Minister (PM) Fumio Kishida is expected to order the preparation of an additional economic stimulus package by the end of March.

Even so, a continuation of the Ukraine-Russia crisis and a light calendar in Asia challenges USD/JPY bulls of late. Ukraine’s President Volodymyr Zelenskyy who previously eased on his stand to faster the peace talks recently said, “Talks with Russia are difficult, at times confrontational.” On the other hand, war escalates in Mariupol. It’s worth observing that Moscow managed to pay the second tranche of Eurobond coupon payment in the USD and avoided default for the second consecutive time.

Amid these plays, S&P 500 Futures print mild gains while tracking the Wall Street benchmarks whereas the US 10-year bonds yield remains firmer around the multi-month high of 2.39%.

Moving on, Fed Chairman Jerome Powell’s speech will be crucial for fresh impulse amid the latest hawkish comments from Fed policymakers. Should Powell repeat the early-week speech that underpinned the bullish bias, USD/JPY has further room on the upside to travel. Also important to watch are the second-tier US data.

Technical analysis

USD/JPY is on the way to challenge the year 2016 peak surrounding 121.70 before heading towards December 2015 peak near 123.70. Alternatively, a pullback move may retest late 2016 top close to 118.65.